More Money Than God: Hedge Funds and the Making of a New Elite

by Sebastian Mallaby

As it turns out, the academic verdict is positive for private-equity funds that specialize in venture capital, but ambiguous for buyout funds that take public companies private. Using various methodologies, three influential studies have found that venture capitalists generate alpha of around 4 to 5 percent per year, whereas buyout funds appear to generate returns that are little different from the S&P 500 benchmark.9 Moreover, private-equity funds have a clear disadvantage relative to hedge funds. They demand that investors commit capital for as much as a decade.

IN SUM, HEDGE FUNDS DO NOT APPEAR TO BE ESPECIALLY prone to insider trading or fraud. They offer a partial answer to the too-big-to-fail problem. They deliver value to investors. And they are more likely to blunt trends than other types of investment vehicle. For all these reasons, regulators should want to encourage hedge funds, not rein them